Two events from the past week help crystallize this strange and contradictory moment for the American economy.
On Wednesday, the Bureau of Labor Statistics reported that rising energy prices had wiped out a year and a half of wage increases for the average American worker. On Friday, SpaceX’s debut on the public markets made Elon Musk the world’s first billionaire.
That stark juxtaposition helps explain why many Americans, in survey after survey, say they no longer believe the American economy is working for them. A few people are becoming fabulously, unimaginably rich, while entire generations of families fear they will never be able to afford to buy a house, raise children, or enjoy a comfortable retirement.
“I don’t think the stock market is necessarily causing” Americans’ pessimism about the economy, said Stefanie Stantcheva, a Harvard professor who studies public sentiment. “But I don’t think people look at it and think, ‘Great, this means I’ll do great too.’ It’s potentially reinforcing this feeling of ‘I’m falling behind.’”
Inequality is not a new feature in the United States. But the explosion of wealth in high places is unprecedented in American history. At the height of the Gilded Age in the late 19th century, the richest handful of Americans had a net worth equal to about 3 percent of the country’s annual economic output, according to data compiled by French economists Gabriel Zucman and Emmanuel Saez. Today, the fortunes of the same 0.00001 percent (about 20 people) represent approximately four times that proportion, equivalent to 12 percent of annual production.
Other economists, using different methodologies, obtain somewhat different figures. But almost no one questions the basic fact that the richest few have made extraordinary progress in recent years.
The picture for the other 99 percent of Americans is more nuanced. More than half of American households own stocks, either directly or through retirement accounts, meaning they have benefited at least to some extent from the record rise in stock prices. Wealth has risen more slowly for middle-class families than for wealthy ones over the past decade, Federal Reserve data show, but it has still risen.
For most Americans, however, “wealth” is a somewhat abstract concept, tied to the house they live in and the retirement accounts they hope to leave intact for as long as possible. What matters most, on a day-to-day basis, is your income. And the share of national income that goes to workers has been trending downward for decades. It hit a record low in the first quarter of the year, according to data from the Department of Commerce.
Now, rising costs are once again affecting workers’ wages. The recent jump in energy prices – a result of the war with Iran – pushed the annual inflation rate to a three-year high in May. Hourly wages, adjusted for inflation, have fallen for three straight months, erasing all gains made during President Trump’s first year in office. Measures of consumer confidence have plummeted as gas prices have risen.
Oil prices have fallen somewhat in recent weeks on hopes of a lasting ceasefire, and are likely to fall further if the United States and Iran reach a deal and oil tankers begin leaving the Persian Gulf through the Strait of Hormuz in greater numbers.
But relief at the pump is unlikely to end Americans’ anxiety after years of one economic shock after another. First, the Covid-19 pandemic paralyzed much of the economy and left tens of millions of people out of work, at least temporarily. Then inflation soared to the highest level in four decades. Since then, Americans have endured high interest rates, tariffs and repeated fears of recession.
“If you think about what it felt like to go through Covid, and then inflation, and also unrest and political instability, you come out of those things thinking, ‘How am I supposed to plan for the future?’” said Elizabeth Wilkins, president of the Roosevelt Institute, a left-leaning think tank.
Stantcheva, a Harvard economist, has found that episodes of high inflation have a long-term effect on consumers’ economic attitudes. This is not only because of the pressure on their budgets, but also because it seems unfair: the rich are able to absorb the higher prices with relative ease, while lower-income households struggle.
“It goes hand in hand with a great sense of inequality and injustice,” he said.
Now Americans face a new threat in the form of artificial intelligence, which tech industry leaders warn could eliminate entire categories of white-collar work. Many economists are skeptical of those predictions, but surveys show that many workers are worried about what technology will mean for their careers. Voters across the country have also rebelled against plans to build AI data centers in their communities, citing their impact on electricity bills, water supplies and air quality.
Given those concerns, it is not surprising that the public is uncomfortable with the increase in wealth that has accompanied the rise of AI. Technology-related companies have driven recent gains in the stock market. SpaceX’s debut on Friday was the first in what is expected to be a series of giant initial public offerings for artificial intelligence companies. (SpaceX, although best known for its rockets and satellites, also owns an artificial intelligence laboratory and has made huge investments in artificial intelligence infrastructure.)
In addition to making Musk a billionaire, the SpaceX IPO alone was expected to generate thousands of new millionaires and several billionaires.
“Many of the tech moguls who are super-rich today haven’t helped themselves in the conversation by saying, ‘My innovation is going to destroy your life,’” said Glenn Hubbard, an economist at Columbia Business School who was a top adviser to President George W. Bush. “It’s not too far-fetched to imagine a violent reaction.”
Hubbard said he didn’t necessarily see a problem with the existence of billionaires or even trillionaires, as long as people got rich through entrepreneurship and innovation rather than through corruption or cronyism. But he said policymakers should take public attitudes seriously. Congress should consider ways to tax billionaires more effectively, he said, and ensure that the wealthy do not exert undue influence on the political system.
Many progressive economists, however, argue that enormous fortunes like Musk’s inherently distort both the economic and political systems, giving the super-rich too many ways to evade regulation, taxes and oversight.
“It is the power to influence markets, it is the power to buy competitors, it is the power to influence policymaking,” said Zucman, one of the French scholars of wealth inequality. “If you want a well-functioning market economy, you don’t want to have too much concentrated power with extreme wealth at the top. This distorts markets and distorts democracy.”
The AI boom is still in its nascent stages, and some analysts are skeptical that SpaceX and other companies will make profits that justify their sky-high valuations. If the doubters are right, stock prices could fall and Musk’s billionaire status could prove short-lived.
But such a decline could have consequences for ordinary Americans as well. AI-related investments have helped carry the economy through a tumultuous period; The stock market boom has helped prop up consumer spending as wage growth has cooled. A burst of the AI bubble would put millions of jobs at risk, from the electricians who wire data centers to the waiters who serve wealthy investors in luxury restaurants. And it would vaporize trillions of dollars in paper wealth held in 401(k) accounts and college savings plans.
That can make AI seem like something of a trap for workers: If the technology succeeds in reshaping the economy, they could lose their jobs. If you don’t live up to expectations, your retirement savings could evaporate. It’s no wonder so many Americans feel the economy is rigged against them, said Heather Boushey, who served as an adviser in the Biden administration and wrote a book about the economic impact of inequality.
“Clearly our economy is designed to create a handful of billionaires and one billionaire,” said Heather Boushey, who served as an adviser in the Biden administration and wrote a book on the economic impact of inequality. “It’s no longer about creating opportunity and stability for the majority.”
